Dive Brief:

• Stop & Shop and King Kullen announced Wednesday that they have terminated their merger agreement signed in December 2018 and announced in January 2019.
• “A joint decision was made not to proceed with the acquisition because of significant, unforeseen changes in the marketplace that have emerged since the agreement was signed in December 2018, largely driven by the COVID-19 pandemic,” the companies said in an announcement.
• In a separate release, Ahold Delhaize noted “terms of the agreement could not be reached,” without providing further detail. The announced agreement included Stop & Shop’s acquisition of 32 King Kullen stores, five Wild by Nature stores and the use of King Kullen’s Bethpage, New York headquarters.

Dive Insight:

When Stop & Shop said it would acquire King Kullen early last year, the announcement marked another significant development for the fast-changing Long Island grocery market. Stop & Shop is the market share leader in the region with more than 50 stores, but it’s facing challenges from evolving chains like ShopRite and Aldi, as well as Lidl, which acquired the Best Market chain in late 2018.

King Kullen, meanwhile, claims to have opened the first full-service supermarket nearly a century ago, but has failed to keep up with industry trends and seen its popularity dwindle as a result. The company closed three stores last year and currently operates 29 supermarkets and five Wild by Nature natural foods stores, according to company's websites.

However, the acquisition, which was originally expected to close in the first quarter of 2019, became a prolonged ordeal. Food Trade News, an industry publication that covers East Coast operators, reported in April that the Federal Trade Commission had wanted Stop & Shop to relinquish some of the King Kullen units it said it would acquire due to store overlaps. Citing an internal memo it obtained, the publication noted the FTC’s demands had been met and final negotiations with the agency were underway, with the deal expected to close later that month.

Last month, Stop & Shop parent company Ahold Delhaize said it expected the King Kullen acquisition to close in the second half of this year. 

The COVID-19 pandemic further complicated matters, as the two companies noted in Wednesday’s joint release. Although the pandemic’s exact impact on the deal’s progress is not specified, the event has upended operations and raised costs while at the same time dramatically boosting sales along with the overall value of grocery chains.

United Natural Foods, Inc., which reported its third-quarter fiscal results on Wednesday, says its Cub Foods and Shoppers Food & Pharmacy retail banners, which it has been trying to offload for nearly two years, are now significantly more valuable thanks to the sales surge during the coronavirus outbreak. The company has delayed the sale of the majority of its retail assets, citing the ongoing pandemic and what president and CEO Steve Spinner called a “poor” market for retail mergers and acquisitions right now.

Despite the scuttled acquisition, Stop & Shop is continuing to remodel stores on Long Island, adding new products, service stations and branding while also shuffling layouts to improve customer flow through the stores. The pandemic has shut down service departments and curbed store traffic, but Ahold Delhaize reported net operating income up 13.8% for the fiscal first quarter.

Ahold Delhaize is also still firmly in acquisition mode as it seeks to retain top market share among its U.S. East Coast banners. The company’s Food Lion chain announced last week it will acquire 62 Bi-Lo and Harveys Supermarkets stores from Southeastern Grocers.